Open Source as a Vector of Social and Economic value

What is Open Source?

The panelists all agreed that a precise answer to the question “what is Open Source?” can’t be defined in one sentence. According to Cedric Thomas, the CEO of OW2, it started 30 years ago and four models emerged since the beginning. Open Source software has been evolving a lot.

The four models’ approach

The original model was established for developers by developers, which defined how you share the rights to use and reuse softwares.

The second model was the industrial or commercial one which appeared in the end of the 90s. Free software became commercial, Open Source and software vendors started to be more famous. Vendors appeared and leveraged business models by giving away the software and selling services to support the use of the software as a market. In that way, proprietary vendors like PeopleSoft, Business Object or other companies were overcharging the users.

The last one is the research Open Source model, an easy way to share IP or a vehicle for collaborative innovation allowing companies to put their efforts together, invent technologies together, and without any battle over who owns what. The foreground and background were based on consortium agreements. Companies develop technologies, grab market shares and make sure that nobody goes straight spending all their energy and money developing their own technology. They’re all converging towards the same technology. OpenStack Foundation  is really representative of that for example.

The fourth model appeared when Open Source became mainstream and within the big industry, used by big players and funded. Management teams actually invest billions of dollars in numerous companies. For instance, Microsoft acquired getable, IBM acquired RedHat, but there were also small Open Source companies.

These models are combined and each are layers with a cross-section. Users have to understand how to play the different types of models. That is why there are Open Source, good technology, legal sharing, open source marketing strategy, operations vehicle for sharing innovation and opportunities for making money.

Open Source software based on sharing

As the founder of DYNE.ORG, Denis Jaromil Roio explained, the software movement was started by Richard Stallman in the 1980s who developed it as a viable economic model. Open Source software is an ethical stance that says that we should run a code, that we know what it does and can study it, modify and distribute it. This is not just the incubator. What they want to do with the free and Open Source software movement besides making money is to allow people to use their software for free to circulate their creations.

“I would never get tired to say that there is a big market opportunity in actually defending the freedom kind of principles of free will.”

Daniel Kastl used the analogy of recipes. If someone would like to have a recipe of  one of his grandmother’ meals, she has the choice to say “yes, of course, you’re free to make it” or she can say “no, you can buy it for me”. This would be the first difference between proprietary software and Open Source software. The difference is in the word free. And then anyone can add a little bit of another ingredient in the recipe, like with Open Source software. Nonetheless, Open Source does not mean that you have to publish the source code, you can keep it and pass it to customers under a license.

What about the moral debate regarding Open Source?

The origin of free software is based on ethical principles. Then it has been used by corporations. The point of view has evolved. It always might be a good idea to do Open Source if a company or an individual is leveraging it in order to grab market shares and maximize your profits, if it’s not a leader but a smaller company or a follower. Major corporations who can actually break new ground, invest and create new technologies with no competition have a distinct competitive advantage and they don’t have the same incentive. The situation is evolving since many small companies are leveraging the existing huge assets of Open Source to create new software, new technologies, and this innovation from Open Source is gradually eroding the old school attitude of these large corporations that would not put anything in the Open Source because their lawyers have to apply the rules.

“While large corporations start being interested in Open Source too, the old-fashioned approach of high protection is being eroded, at least in the software industry.”

Is Open Source a business model?

It actually depends on the background. Some people might just not want to hear Open Source as a business model at all and see Open Source as a way to collaboratively develop software. Actually, a specific business might be referred to a specific license. According to Nick Dijkstra, co-founder of DGEN, this question provokes many other questions. How do you treat the additions that you make and how do you treat the contributions that you are making? Do you feed that back to the community? Should I apply open source or should I adopt an open source software model within my business? Can I still make money?

There are moral reasons to be part of that community. But how do I make sure that when I, as an individual contributor, talk to my investors that I still make money? In the blockchain space, people are building free Open Source software that can be modified and even open to outside contributors. There are ecosystems where the business model isn’t based on charging admission to use the product. The goal is to build a bigger ecosystem around that Open Source platform and to see if we can build a thriving ecosystem that the contributors and the workers can benefit from.

This is tremendously difficult. In Berlin for instance, people from bitcoin are trying to solve this issue about how making sure that it’s okay to make money by building and contributing to Open Source software, but also have a model for continuous maintenance and improvement of that software without anybody manipulating the whole software or building that for a non-transparent reason.

Is Open Source a competitive advantage that a business model could be based on?

In the Open Source community, it is common to hear that at the beginning it was impossible to think about business model while talking about Open Source and Daniel Kastl from Consento feels this way.

“Working with Open Source has been finally quite successful because as a business, we rebuild trust with Open Source and we provide transparency. I don’t think of a business model, when I think about open source but more of a trust model or a development model.”

He explained that over the past fifteen years, the users of his software or customers did not accept any more of black boxes. Especially large corporations sometimes don’t accept it because they don’t want to be locked into a technology. This puts Open Source workers at an advantage.

Mustafa Al-Bassam, cofounder of Lazyledger, said that cryptocurrency and blockchain space are indeed not seen as a business model, but as a compulsory requirement for all projects in space. Developing software that uses cryptography implies using Open Source software, otherwise no one can really trust the software. The whole principle of cryptocurrency is that you control your own account balances and finances through cryptographic piece. If the software that you’re using to do that is the source, then how can you manage to trust it? Today, there is an increase of decentralized projects that need Open Source code to be valid like fundraising strategy of doing initial coin offerings. It is possible to raise billions of dollars and that’s how it really increased available funding.

There are also a lot of experiments in this field for incentivizing and finding Open Source tools and developers to work on various projects. Web sites exist where people can publish proposals of what they want to develop and others can fund it. The ways that it’s funded might be slightly unusual. For instance, quadratic funding is used: people vote for projects which deserve, according to them to be funded, then donations are matched by a pool of money dedicated to fund public goods, the number of contributors is higher than the total contributions. A project which got more votes will be executed, rather than another which reaches a bigger amount of money but less votes. These funding methods emphasize the democratic aspect of Open Source community because the project which will be funded by thewhole  ecosystem (organizations, companies, foundations, etc.) is supposed to interest more people.

The expanding community

When Open Source is discussed as a business model, it is about the viability of a business model for an organization. Panelists agree on the fact that the sector is reaching a scale now where it should be right for developers to get paid for their contributions and what they do. Open Source workers don’t want to become giant companies, but stay individual developers and maintainers and be able to live on that. That’s why building on any kind of this model around Open Source should be celebrated, as Cedric explained, especially if that means that people have the capability to take a source code and don’t pay for it. It is important to step outside of this kind of business model. Companies continue to pay for specific software, but individuals are becoming less likely to pay for software, for instance if they want to use Office software, people can simply use Google Doc or whatever. There is a lot of web-based software today. Developers then consider that they gain more revenue from other sources.

A lot of products are being offered for free and a whole generation is growing up expecting for them to play games for free, to participate in certain things for free. Open Source might be close to Android which is free because Google has found different ways to make money from you. If you have the knowledge, you could take an Open source software and run, and it’s where Google doesn’t get to take all your data and take everything away from you.

What are the investment opportunities for startups that choose Open Source with moderate to highly favorable license? What do investors look for and where do they look for value?

There are different types of revenue streams for  Open Source. It is possible to see business models that can incorporate a proportional footprint source. There are also other models that only incorporate a portion of Open Source software but minor, what is called Open Source washing because it is proprietary software. How do you make money with free software? As a startup trying to raise money and develop a competitive advantage, it is possible to leverage Open Source software as a development model or a legal model for your software to access a market share, the market footprint.

Billy Joy who co-founded the company Sun Microsystems in 1982 said that there is value in numbers. A real Open Source creates some resilience for your software and that is something that investors may be looking at although it is difficult because a large number of conventional investors want to build assets.  The startup has to find the advantage for the investor somewhere else or add other advantages. The right way to make investors invest in Open Source is to build a community around a software and use the capital to gather community and find a proper way to monetize a value proposition.

The panelists also talked about the importance of building a pan-European development in the field that can actually leverage quality and especially value quality over quantity. It is important to adapt legacy systems to keep the trust into Open Source infrastructure. Concerning startup, there is a need for expertise and good software developed by them will be paid a lot. One CEO that knows how to organize the company and do it well without wasting money, it is actually a valuable asset. There is a need to build a network of quality trust, as Daniel said, and not just a quantitative KPI (Key Performance Indicator) that tells us how fast we can scale and fail. The founder of Consento sees Open Source as a requirement to compete easily. He concludes by this rhetoric question:

“Is it acceptable for an investor to not use Open Source in 2020? Is it possible to do innovation without Open Source technologies?”

About the speakers

Denis Jaromil Roio is the founder of DYNE.ORG , a technical coordinators team and a community-based organization which offer a free and Open Source software. It is a non-profit organization which promotes interdisciplinarity and sustainability in terms of ecological standards concepts behind ledger project and the human centric concept. It actually pushes forward a vision that goes beyond the economical startup model, which was mostly ordered from the US to develop a European identity of ecological and economic development of technology. This aims at taking communities and participation as the real KPI, not commercially but socially.

Nick Dijkstra is  cofounder of DGEN which means decentralized generation, and a founding partner of BEYOND VENTURES. DGEN is an independent non-profit think tank based in Berlin which is trying to help society, the public and the private sector in Europe to prepare for a more decentralized future, for instance making people familiar with blockchain or other technologies. They write research reports on specific topics to help people understand how specific industry might change because of emerging technology. Beyond Ventures are focused on blockchain and other technologies too.

Mustafa Al-Bassam is the cofounder of Lazyledger, a blockchain based project that develops a scalable data availability layer of applications. The activity is divided between low-cost storage, scale-out and off-chain execution.

Cedric Thomas is the CEO of the OW2 community, a European independent nonprofit organization focusing on Open Source organizations. Their mission is to promote Open Source software for information systems. They concentrate on application platforms, middleware, cloud software, identity management software, etc. The organization founded in 2007 has hosted some 100 projects, developed by a community of 2500 individual developers and some 30 corporate members as well. They have recently launched the initiative on Open Source good governance in order to talk to larger users who should stop being consumers but applies best practices in terms of compliance, security, dependency management. This also a community of individual developers or companies which represent the ecosystem, the real value.

Daniel Kastl is the founder of Consento project, which has been selected as one of the pending proposals by the NGI Ledger program. For him, free and Open Source was a life changer. He starts a technology company in Germany and Japan with teams from open data and Open Source communities. He is also a maintainer of some software projects (e.g.: for Amazon).